Economic Environment 40 Marker Essay

Economic Environment 40 Marker Essay Economic Environment 40 Marker Essay The external environment in which businesses operate can have a significant effect on their success. To what extent do you think that the external environment in the UK is favourable for businesses at the moment? (40) The UK economy grew by 2.6% last year, the fastest pace since 2007, at which point the country was in a recession. The unemployment rate stands at 5.8% of the adult population. Although this is still high (1.91 million people are unemployed) it is the lowest in six years meaning that generally, consumers now have higher disposable income; this is particularly significant as average earnings including bonuses are now up by 1.8%, with wages rising faster than inflation. Inflation has also fallen to 0.5%, allowing for cheaper purchase of materials/supplies and more cost-effective production. However, the pound has weakened against the dollar and the euro, having implications for imports and exports. It could be argued that the UK environment is favourable for businesses at the moment in terms of Human Resources, as unemployment is high, meaning more people may be willing to work for a minimum wage. This allows businesses to reduce costs in areas such as wages, meaning they are more able to invest in other areas such as expansion in order to encourage growth. This will particularly benefit the economy as growth of businesses means a higher GDP for the UK due to increased output as a result of increased demand. High unemployment means that firms also have access to a wider pool of labour, allowing them to target a more specific demographic during the recruitment process. However, these people may not have the skills required, perhaps affecting productivity as well as quality, as goods may be made faulty or services may be delivered incorrectly. Issues with skills may be particularly significant as Rolls Royce are planning to make redundancies of 2,600 employees as part of a cost c utting programme to compete against bigger rivals such as General Electric. These are likely to have specialist skills, meaning they may struggle to provide skills for vacancies elsewhere. In addition, these people may only be able to take the job in the short term which will mean a business has to go through the recruitment process regularly. This will in the short term prove a cost to the business, something to be avoided during times of low demand as a result of unemployment or inflation. It therefore depends on Government intervention as this could lead to the implementation of education/training programmes for the unemployed, which will determine their skills set and their motivation to stay with a firm for the long term once employed. In turn, this will govern whether the employees are increasing costs for the business more so than they need to be, determining whether the UK environment is favourable for businesses in terms of HRM. The UK economic environment can also be considered favourable in terms of a firms marketing, as increased GDP indicates there is a high demand, allowing firms to market themselves as a brand based on pricing, something firms find difficult to do during a recession as consumers expect prices to be lowered. This could perhaps allow firms to increase profit margins so that profit could either be reinvested or distributed as dividends to shareholders, encouraging further investment. This increased investment could allow some firms to become much more efficient, creating a USP or even acting as a competitive advantage against other firms, which is particularly important in a growing economy as there will be a higher chance of business start-ups being successful. However, it could be argued that the UK environment is not favourable in terms of marketing as it is more expensive to advertise due to higher demand as a result of a higher disposable income. It may also be particularly difficult for businesses to differentiate themselves from other companies as most businesses will be advertising to try and increase